Shell Oil Co. v. Federal Energy Administration, 5-13.

• Decision Date: 11 November 1975
• Docket Number: No. 5-13.,5-13.
• Citation: 527 F.2d 1243
• Parties: SHELL OIL COMPANY, Plaintiff-Appellee, v. FEDERAL ENERGY ADMINISTRATION, an agency of the United States, and Frank G. Zarb, Administrator, Federal Energy Administration, Defendants-Appellants.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

527 F.2d 1243

SHELL OIL COMPANY, Plaintiff-Appellee, v. FEDERAL ENERGY ADMINISTRATION, an agency of the United States, and Frank G. Zarb, Administrator, Federal Energy Administration, Defendants-Appellants.

No. 5-13.

Temporary Emergency Court of Appeals.

November 11, 1975.

Marvin L. Coan, with whom Rex E. Lee, Asst. Atty. Gen., and Stanley D. Rose, Atty., Dept. of Justice, Washington, D. C., were on the brief, for defendants-appellants.

William E. Simon, Washington, D. C., with whom William E. Wickens and Frederick S. Frei, Howrey & Simon, Washington, D. C., and William G. Winters, Jr., and Albert D. Bowers, Shell Oil Co., Houston, Tex., were on the brief, for plaintiff-appellee.

Before CHRISTENSEN, ESTES and JOHNSON, Judges.

ESTES, Judge.

Following a hearing on cross-motions for summary judgment, the United States District Court for the Southern District of Texas issued an order, August 7, 1975, which permanently enjoined the Federal Energy Administration (FEA),¹ and Frank G. Zarb, Administrator, defendants-appellants, from enforcing or attempting to enforce against Shell Oil Company (Shell), plaintiff-appellee, sections 212.101-103 of the FEA's price regulations controlling the amount which may be charged by a lessor as rent for real property used in the retailing of gasoline.² The regulations were held null and void as beyond the FEA's authority under the Emergency Petroleum Allocation Act of 1973, 87 Stat. 628, as amended (Allocation Act), 15 U.S.C. § 751 et seq. (1975 Supp.). The court also permanently enjoined enforcement of an FEA decision and order, Shell Oil Company, Case No. FER-0005 (filed 5-14-74, decided 12-10-74), 1 CCH Energy Transfer Binder ¶ 20,204, after finding the decision and order null and void insofar as it purported to control the rents charged by Shell under service station leases both during the existence of and following the expiration of the Allocation Act and insofar as it failed to permit Shell to pass through its increased costs incurred with respect to service station leases.

The critical issue in this appeal is whether the FEA may, pursuant to its authority under the Allocation Act, regulate the rent charged for real property which is used in retailing gasoline, where the lessor and lessee are "refiners, resellers, resellers-retailers, or retailers," 10 CFR § 212.101, of gasoline. The district court resolved this issue in favor of Shell in a perceptive and well-reasoned memorandum opinion and order and final judgment, entered August 7, 1975, granting Shell's Motion for Summary Judgment and denying FEA's Motion for Summary Judgment.

Under section 4(a) of the Allocation Act, the FEA was mandated to promulgate regulations for the mandatory allocation of crude oil, residual fuel oil, and refined petroleum products in amounts and at prices to be specified by the regulations. The regulations adopted under section 4(a) were to achieve "to the maximum extent practicable" inter alia:

(F) equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry, including independent refiners, small refiners, nonbranded independent marketers, branded independent marketers, and among all users.

The mandatory limitation of rents for real property, used in retailing gasoline, to the level prevailing on May 15, 1973 for the same property, originated under Phase IV of the Economic Stabilization Program, in 6 CFR § 150.360, 38 F.R. 22536 (August 22, 1973). During the transition of authority over petroleum products from the Cost of Living Council to the FEA, the Cost of Living Council price rules were incorporated by reference in the regulations adopted by the FEA on December 27, 1973, 39 F.R. 744 (Jan. 2, 1974). On January 14, 1974, the FEA issued revised Petroleum Allocation Price Regulations, 39 F.R. 1924 (Jan. 15, 1974), which superseded the December 27, 1973 regulations. Subpart G of 10 CFR § 212, dealing with rents chargeable by lessors under the revised regulations, applied to "each leased real property used in the retailing of gasoline."

The FEA recognized that with the expiration, on April 30, 1974, of the Economic Stabilization Act of 1970, 84 Stat. 799, as amended (Stabilization Act), 12 U.S.C. § 1904 note (1975 Supp.), its authority to regulate all rents charged for any real property used in connection with retailing gasoline had ended. However, in issuing new rental regulations on April 30, 1974, 10 CFR §§ 212.101-103, 39 F.R. 15139-40 (May 1, 1974), the FEA merely narrowed the scope of its rental pricing regulation, 10 CFR § 212.101, to cover lease transactions where both the lessor and lessee were engaged in the petroleum industry as a refiner, reseller, reseller-retailer, or retailer. The FEA stated, at 39 F.R. 15139-40:

The leasing of property used in the retailing of gasoline, between suppliers and retailers, is inextricably woven into the fabric of the supplier's marketing system and is directly related to the price at which gasoline is sold at retail. The price charged for product and the rent charged for the property, each of which is often expressed as a flat rate in cents per gallon, constitute a combined charge to the retailer by the suppliers for the purchasing and retailing of gasoline. FEO has determined that the statutory mandate to regulate the price of refined petroleum products requires the continued regulation of rents charged between retailers and suppliers in service station leases, as an integral part of its petroleum pricing regulations.

As the district court held, the legislative history of the Allocation Act shows that the authority for controlling prices of petroleum products was included in the Act solely to effectuate the FEA's allocation authority. The Senate Report stated: "In the absence of such price regulations, the allocation program could be wholly frustrated by sellers who demanded prohibitively or exorbitantly high prices for supplies subject to allocation. . . ." Emphasis added. S.Rep.No.93-159, 93d Cong., 1st Sess. 26-27 (1973). The House Report further clarifies the legislative intent behind the pricing authority conferred in the Allocation Act by stating:

The bill would require that the mandatory allocation program determine the prices of products or the methods for determining equitable prices of those products. This has been included on the premise that it does no good to require the allocation of products if sellers are then permitted to demand unfair and discriminatory prices. Emphasis added

H.Rep.No.93-531, 93d Cong., 1st Sess. 12 (1973); 2 U.S.Code Cong. & Admin. News, 93d Cong., 1st Sess. pp. 2582, 2589 (1973).

Clearly, Congress was conferring authority under the Allocation Act to regulate only the price of that which it was mandating the President to allocate. The Stabilization Act specifically provided for the regulation of prices, rents, wages, salaries, interest rates and corporate dividends. The FEA's regulations, 10 CFR §§ 212.101-103, while concededly narrowing the scope of applicability to transactions between lessors and lessees who were operating within the petroleum industry, attempt to regulate under the Allocation Act the rent chargeable for the use of real property, which the FEA has no authority to allocate.

The FEA's rent regulations, 10 CFR §§ 212.101-103, are not only beyond the scope of the agency's authority but they also fail to support the agency's own rationale for their existence. The FEA contends that these regulations prevent the frustration of its petroleum pricing regulations. But, while the rent charged by the lessor for real property used in retailing gasoline will affect the total cost of the retailer-lessee's operation, it is only when the lessor of the real property and the supplier of the gasoline to be marketed at that site are one and the same that any increase in rent could possibly be construed as a hidden increase in the price of gasoline. The rent regulations promulgated by the FEA are not limited to this situation. On the contrary, the regulation applies where a lessor of real property used for retailing gasoline is not in fact the supplier of the gasoline marketed at that location. Further, there are many items, e. g., increased real estate costs and taxes, increased property maintenance expenses, and other increased costs of doing business which would increase the cost of operating a service station and thus are just as inextricably woven into the price at which gasoline could be sold at retail from the station as rents.³

FEA, under its own regulations, 10 CFR § 210.62(c), prohibits "any practice which constitutes a means to obtain a price higher than is permitted by the regulations in this chapter. . . ." Thus, in any instance in which the FEA believes a lessor who supplies gasoline to its lessee has raised its rents as a means of obtaining a higher price for its gasoline than would otherwise be allowed, the FEA could effectively compel the lessor to substantiate the increased rentals by bringing an action to enforce 10 CFR § 210.62(c).⁴

The decision of the district court that the FEA's rent regulations, 10 CFR §§ 212.101-103, are beyond the authority conferred on the agency under the Allocation Act was correct. We also agree with the district court's holding that the FEA's decision and order, dated December 10, 1974, in Shell Oil Company, Case No. FER-0005, was null and void insofar as it purported to control either the rents chargeable by Shell under leases having effect during the existence of the Allocation Act or the rental amount or terms of Shell's leases having effect after the expiration of the Allocation Act.

The district court also invalidated the decision and order of the FEA for the reason that Shell had not been permitted to pass-through its increased costs with respect to its leased stations.⁵ It is noteworthy that the FEA assumes...